Buying Spree

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So far, 2005 is picking up right where 2004 left off in terms of the quick pace of b-to-b media merger and acquisition activity. The only place there's more dealing is on "The World Series of Poker."

Among the major deals announced in January:

DMG World Media acquired interactive marketing trade show Ad:Tech.

United Business Media purchased MediMedia's health care properties in France.

Douglas Publications bought Briefings Publishing Group from Wicks Business Media.

Also last month, Dow Jones & Co. closed its $528 million acquisition of MarketWatch, which was announced last year.

The early activity confirms the expectations of many in the industry that this will be a strong M&A year. "I think 2005 will be better than 2004," said Baran Rosen, president of M&A firm Whitestone Communications. "How much better is hard to say."

The "DeSilva & Phillips Report 2005" tabulated 124 deals completed in 2004, 51% more than the 82 the previous year. "The sheer number of deals ... exceeds anything we've seen, not just since the recession but all through the boom of the second half of the '90s," according to the report.

The value of the deals the media investment bank tracked for the report grew much less dramatically. The aggregate value of the deals taking place in 2004 totaled $2.86 billion, 6% more than in 2003.

What bodes especially well for 2005, according to the report, was the surge in activity in the final quarter of 2004. Fourth-quarter deals comprised 43% of the year's volume, and the deal flow was a 253% improvement over 2003. DeSilva & Phillips said it expects that momentum to continue. "The '05 outlook is rosier even than '04," said Reed Phillips, managing partner of the media investment bank, "because consumer magazines have had a strong rebound, and now I think we're going to see an increase in b-to-b activity."

Other investment bank reports on media M&A activity noted similar strength in the market. Whitestone Communications calculated that the number of deals in the publishing, information and training sector rose 12% to 349 in 2004 from 312 in 2003. The value of those deals jumped 33% to $12.0 billion in 2004 from $9.0 billion the previous year.

Whitestone calculated that the number of trade magazine/trade show deals remained flat at 31 between 2003 and 2004. However, the company found that the value of the deals increased by 73% to $561 million, from $325 million in 2003.

Media investment bank Jordan, Edmiston Group also looked back on 2004 deal activity. According to the company, the overall number of deals in the media and information sector totaled 394 in 2004 compared with 301 in 2003, a jump of 31%. Jordan, Edmiston calculated that the aggregate value of these deals increased almost 50% to $24.1 million, from $16.1 million in 2003.

B-to-b magazine deals jumped 26%, from 31 to 39, between 2003 and 2004, and the value of those deals vaulted 238% to $1.827 billion, from $541 million, according to Jordan, Edmiston. Similarly, deals involving exhibitions and conferences increased 28%, from 18 to 23, between 2003 and 2004, and the value of those deals exploded by 753%, from $108 million to $921 million.

Additionally, Jordan, Edmiston tabulated that the number of online media deals jumped 71%, from 51 in 2003 to 87 in 2004, and the value rose to $6.8 million from $2.3 million.

Jordan, Edmiston sees the market accelerating this year. "There was a lot of pent-up demand built up through '01, '02 and '03," said Tolman Geffs, managing director of Jordan, Edmiston.

Observers said they expect health care, finance and Internet properties to continue to be among the most active categories in M&A activity.

Larry Grimes, president of media broker W.B. Grimes & Co., said a property's allure to suitors depends less on its market than its position in that market. "The hot sectors will be any section where somebody has a publication that is in a commanding position, dominating their niche," he said.

Overall, what is driving the resurgence of the M&A market?

One key element is the relative health of b-to-b media, especially compared with the three-year period after the tech crash. During the downturn, b-to-b media companies that mulled a sale generally decided to hold off, because EBITDA (earnings before interest, taxes, depreciation and amortization) results were so anemic.

"This year we will see a lot more agreement on price between buyers and sellers," said Robert Crosland, managing director of media investment bank AdMedia Partners. "After a certain period of time, everybody has adjusted their expectations."

Additionally, financing is much easier to come by. Many potential deals in the years 2001 to 2003 weren't consummated when financing fell apart.

"The financial markets came back, [in terms of] both subordinate and senior debt, and from a combination of industry lenders, like General Electric, and traditional commercial bankers," said Tom Kemp, managing director at Veronis Suhler Stevenson.

Private equity money is also in ample supply. In its report, DeSilva & Phillips pointed out that so-called "strategic" buyers were essentially absent from the top 15 deals of 2004.

"The strategics stayed out of the market for a second year," the report noted. "But the deal market no longer seems to depend on them in the same way. Financials, virtually alone, created the biggest middle market in years."

Some observers believe that strategic players will begin re-entering the market this year. "My guess is that Reed Elsevier and VNU probably will become more active in b-to-b media than they have been recently," Kemp said.

Who else will be involved? TechTarget, which made several deals in 2004, including a $40 million acquisition of Bitpipe, is busy integrating its purchases. But it likely won't stay on the M&A sidelines for long. "Our strategy is more of the same," said TechTarget CEO Greg Strakosch.

CMP Media, another company noted for its tech sector presence, has been bolstering its other core market in recent months, health care. CMP parent United Business Media acquired health care properties late in 2004; in the U.S., CMP's largest recent deal was its acquisition of SCP/Cliggott, a health care media company. CMP also recently launched a new publication: Applied Neurology.

Gary Marshall, CEO of CMP, said the SCP/Cliggott deal has worked well for the company. He said CMP is willing to evaluate potential deals, but the company is by no means ready to binge. "We won't do something for the sake of it," he said.

Penton Media, which made some ill-fated deals in the late 1990s, is currently focusing on organic growth but hasn't ruled out acquisitions, according to CEO David Nussbaum. "We will in 2005 look at the potential of strategic acquisitions that fit into our growth markets," he said.

But, Nussbaum added, "We're not going to be a deal machine."

On the other hand, Ascend Media, which is backed by private equity, may be a deal machine, even as it integrates its $130 million Medical World deal. "If we see a compelling strategic acquisition opportunity, in all likelihood we'll jump on it," Ascend President-CEO Cameron Bishop said.

And that statement seems to highlight the difference between the private equity-backed players and the strategics: One is in the game, the other is only thinking about joining.